Buckco’s WACC is closest to:
A financial analyst at Buckco Ltd. wants to compute the company’s weighted average cost
of capital (WACC) using the dividend discount model. The analyst has gathered the
following data:
Before-tax cost of new debt 8%
Tax rate 40%
Target debt-to-equity ratio 0.8033
Stock price $30
Next year’s dividend $1.50
Estimated growth rate 7%
A. 8%.
B. 9%.
C. 12%
Answer: B. 9%.
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